American Journal of Business Management, Economics and Banking ISSN (E): 2832-8078 Volume 26, | July - 2024 P a g e | 38 www.americanjournal.org CAPITALIZATION LEVEL OF COMMERCIAL BANKS: THEORY AND PRACTICE Mirzayev Mirza Abdullayevich PhD., Associate Professor Tashkent State University of Economics A B S T R A C T K E Y W O R D S In the article, at the current stage of the liberalization and modernization of the economy in the Republic of Uzbekistan, the priority tasks of the banking system reform strategy are researched and the necessity, means, factors and effective measures of attracting private capital to the banking system are scientifically justified. In commercial banks, on the basis of capital attraction and improvement, it covers the need for monetary resources to carry out asset operations, primarily credit operations. Banks have limited opportunities to attract funds, and in all countries this process is regulated by the Central Bank. The borrowed funds make up the main part of the credit resources of commercial banks. Bank, private capital, banking system, strategy, level of bank, banking system resource, capitalization, finance. Introduction In the Address of the President of the Republic of Uzbekistan to the Oliy Majlis on January 24, 2020, it was stated that the development of financial markets, including the stock market, should be one of our main goals in the new economic conditions, as well as the position and reputation of the international financial markets in the future. by introducing new financial instruments and issuing bonds in our country in cooperation with the leading international investment banks of developed countries, in particular, "J.P. Morgan", "Citibank", "Deutsche Bank", further expanding the scope of banking services, or the need to develop the banking system based on information technologies [1]. In addition, bold steps are being taken to gradually reduce the state share in the capital of banks, to create a healthy competitive environment in the system sector through the privatization of banks, to improve the quality of service, and to improve the quality and culture of lending in all respects. The efficiency and continuity of commercial banks' activity depends first of all on how adequately they are provided with resources. The financial resources of commercial banks are attracted on the basis of certain conditions and are formed from the bank's own funds and are directed to active operations in order to generate the bank's income. Raised funds cover the need for cash resources to carry out active operations, primarily credit operations. American Journal of Business Management, Economics and Banking Volume 26 July - 2024 P a g e | 39 www.americanjournal.org 2. Literature review It examines the role of banking capital in the conduct of monetary policy in India in the period after the global financial crisis, based on the theories of foreign scholars. Empirical results show that banks with a high ratio of capital to risk-weighted assets (CRAR) attract funds at a lower cost. In addition, banks with high CRARs transmit monetary policy impulses smoothly, while stressed assets in the banking sector hinder transmission. Recapitalization to increase CRAR can improve transmission; however, CRAR may not help for banks above a certain threshold level due to reduced sensitivity of loan growth to the monetary policy rate. Therefore, it is stated that the monetary policy can affect the credit supply depending on the capital situation of the banks (Muduli S., Behera H., 2023). Most importantly, bank capital is an important evidence that policy uncertainty can improve the impact of bank economic performance and performance. In general, bank capital adequacy can reduce the negative impact of policy uncertainty on the banking industry through stabilization measures (Mendy L. L., Yang S. Y., Shi W. Z., 2023). Economist Frank Hunt writes, “The capitalization rate can be determined by dividing annual net operating income by the cost of a piece of property. This formula is important for determining the return on investment that an investor can hope to realize. As the level of capitalization increases, the decrease in the appreciation of the asset. Marking has been argued to be inversely related to the price/earnings multiple for the same asset (Frank Hunt, 2021). According to local scientists O.I.Lavrushin, U.O.Azizov, T.M.Karaliyev, "The resources of credit organizations are the sum of their own and borrowed resources at the bank's disposal, which are used in the implementation of asset operations. Bank resources are reflected in the passive part of the balance sheet of credit organizations" (Lavrushin O.I., Azizov U.O'., Karaliyev T.M, 2019). In our opinion, it is appropriate to provide a broader explanation of the composition of funds equaled to own funds by our above scholars in their views on the bank's resource base. According to one of our local scientists, Professor Sh. Z. Abdullaeva, "the resource base of commercial banks determines the level of their credit potential. The resource base created by the bank can be directed to provide various loans and finance investments and other asset operations" (Abdullayeva Sh.Z., 2019). Professor A.A. In his research, Omonov stated that "resources of commercial banks are the financial value formed due to the attraction of free funds in the economy and the formation of private funds (capital) under certain conditions" (Omonov A.A., 2008). emphasizes. U.D. Artykov "bank resources are a set of reserves and opportunities that can be used for the implementation of banking activities within the framework of the bank's policy, consisting of the bank's own funds and borrowed funds, which are the basis for the bank's income" (Ortikov U.D., 2008) considers it as Of course, while supporting the definition given by the authors, we think that special attention should be paid to the bank's resource base. At the same time, a number of foreign economists, including K. Bainke, Y. Vasilishen, A. Gryaznova, Y. Dolan, V. Kolesnikov, J. Matuk, G. Panova, have discussed the issues of attracting financial resources and increasing the level of capitalization of commercial banks. It was reflected in the scientific research of D. Sinke. Special aspects of this issue are reflected in the scientific works of Uzbek economists Y. Abdullaev, A. Kamolov, I. Toymukhamedov, O. Rashidov, O. Olimjonov, A. Kadyrov. American Journal of Business Management, Economics and Banking Volume 26 July - 2024 P a g e | 40 www.americanjournal.org 3. Research methodology. At the stage of widespread use of innovations in today’s banking and financial system, economic research methods such as data collection, analysis, synthesis and logical thinking of the electronic money system have been widely used to improve the services of commercial banks in the country. 4. Analysis and discussion of results. In fact, only private banks with a solid resource base will have the opportunity to further strengthen customer confidence while ensuring their liquidity and financial stability. Therefore, in strengthening the resource base of private banks, the main attention is paid to the sources of funds in the liabilities of the bank balance. First of all, it is necessary to study the composition of the resource base of a private bank. Figure 1. The composition of the resource base of private banks [2] Deposits make up the main part of the attracted funds of banks. Deposit operations are called deposit operations in banks for the purpose of achieving goals. Deposits are beneficial not only to the depositor, but also to the bank. Through many deposits, the loan capital of the bank is formed, and then the bank lends to various economic sectors on favorable terms. The difference between deposit and loan interest is the bank's margin (premium) for attracting free funds and deploying loan capital. Bank liabilities are a source of organization of bank resources, and its size depends on several factors. These are: ✓ activities of banks carried out at the expense of their own funds; ✓ the policy of the Central Bank in the field of monetary and credit policy management; ✓ attracted funds of the bank and their composition; ✓ the amount of mandatory reserve transferred by the commercial bank to the Central Bank; ✓ other passives. American Journal of Business Management, Economics and Banking Volume 26 July - 2024 P a g e | 41 www.americanjournal.org Deposit accounts can be different, and their classification is based on the source of deposits, their target orientation, level of profitability and other similar criteria. In most cases, resources are classified in terms of their owners. In particular, deposits are made by legal entities (enterprises, organizations) and individuals. Based on the practice of foreign banks, the main resource base of commercial banks is their deposit resources. Demand deposits are cheap, but unstable funds in term of deposits of commercial banks. Term and savings deposits attracted by banks are stable, but expensive funds. Table 1 below presents an analysis of the composition and dynamics of deposit resources of commercial banks operating in the Republic of Uzbekistan by term. The main part (40-45 percent) of the deposit funds of commercial banks operating in our country belongs to demand deposits. In 2019, demand deposits made up 42.7 percent of total deposits (29 trillion soums). 5.3 percent from 1 day to 30 days, 12.5 percent from 30 days to 180 days, 12 percent from 30 days to 180 days, and 27.4 percent from 1 year to 27.4 percent. In 2020, compared to 2019, the volume of deposits will be 30 percent or 21 trillion. increased to soums. In 2020, the total volume of deposits is 91 trillion. amounted to soums and 38.7 percent (35.2 trillion soums) consisted of demand deposits. Deposits from 1 day to 30 days accounted for 3.4 percent, deposits from 30 days to 180 days accounted for 12.8 percent, deposits from 30 days to 180 days for 12 percent, and deposits over 1 year accounted for 32.4 percent. In the period from 2021 to 2020, the composition of deposits increased by 26% to 114.7 trillion. reached soums. In 2021, demand deposits accounted for 42.8 percent (49.1 trillion soums) and deposits over 1 year accounted for 27.5 percent (31.5 trillion soums). Deposits from 1 to 30 days were 5.3%, 12.4% from 30 to 180 days, and 12% from 30 to 180 days [3]. Each commercial bank independently determines the level of deposit interest rates based on the Central Bank of the Republic of Uzbekistan account rate, the state of the money market and its own deposit policy. The amount of income for different forms of deposit schemes depends on the term of the deposit, the amount, the nature of the account, the size and nature of the services and, finally, on the client's compliance with the terms of the deposit agreement. Table 1 Balance of deposits of commercial banks as of January 1, 2019-2023 (billion soums) [4] The date Total By terms Until requested From 1 day up to 30 days from 30 days up to 180 days from 180 days up to 365 days From 1 year high 01.01.2019 70 001 29 912 3 711 8 785 8 422 19 171 01.01.2020 91 009 35 189 3 133 11 654 11 523 29 511 01.01.2021 114 747 49 153 6 081 14 207 13 749 31 556 01.01.2022 156 190 66 129 5 291 18 780 20 826 45 164 01.01.2023 216 738 92 553 4 463 25 587 26 855 67 280 156.2 trillion by commercial banks in 2022. 42.3 percent (66.1 trillion soums) of deposits were attracted, and 28.9 percent (45.2 trillion soums) were deposits for more than 1 year is coming. As of January 1, 2023, there has been more growth than in previous years. In 2023, the net growth will be 38.7 percent or 60.5 trillion. amounted to soum. The high share of unclaimed deposits in the resource base of commercial banks indicates the weakness of the resource base and the presence of conflicting situations in the effective management of resources. In particular, the shortage of funds in representative accounts, insufficient satisfaction of customers' American Journal of Business Management, Economics and Banking Volume 26 July - 2024 P a g e | 42 www.americanjournal.org demand for cash, and existing problems in meeting the need for resources necessary for financing effective projects are among these. For example, in 2021, the share of funds held until demand in the composition of deposit funds was 21.2% in the commercial banks of the USA, 29.5% in the commercial banks of Kazakhstan, and 14.4% in the German banking system. In the practice of our country, it was 42.7% in 2019, 38.7% in 2020, 42.8% in 2021, 42.3% in 2022, and 42.7% in 2023. As can be seen from the above data, demand deposits in commercial banks of economically developing countries are 2-3 times lower than in our country. This situation means that commercial banks of our country rely on demand deposits as one of the main resource bases (A. Omonov, 2010). Figure 2. Deposits attracted in commercial banks of our country and their growth rate (billion soums) [5] According to the experience of foreign countries, term deposits are considered as a stable financial source in the resources of commercial banks. Although deposits in the resources of commercial banks of our republic have a tendency to grow, the share of time and savings deposits in the composition of deposits is much lower than before demand. Therefore, one of the important tasks facing commercial banks is to increase the source of funds that is stable in term of resources. 5. Conclusions and suggestions The problem of organizing the bank's resources is the first priority for the smooth operation of the bank. Bank resources are formed through passive operations carried out by banks and are kept in the passive part of the bank's balance sheet. As a result of the above analysis and studies, we were able to develop a number of suggestions: 1. When considering issues of resource stability, it is necessary to pay attention to the guarantee of deposits. The formation and circulation of bank resources is a continuous process, and this, in turn, is the basis for the continuity of banks' activities [6]. 2. The structural structure of bank deposits for individual commercial banks is different. The sum of the bank's own funds and borrowed or purchased funds constitutes the resource base of commercial banks. 2019 2020 2021 2022 2023 Deposit size 29912 35189 49153 66129 92553 Net growth rate 0 17.6 39.7 34.5 40.0 0 10000 20000 30000 40000 50000 60000 70000 80000 90000 100000 0 5 10 15 20 25 30 35 40 45 Deposit size Net growth rate American Journal of Business Management, Economics and Banking Volume 26 July - 2024 P a g e | 43 www.americanjournal.org 3. It is important to constantly increase the share of the authorized capital in the structure of the bank's capital, because the authorized capital is the most stable part of the private capital along with the undistributed profit of the bank. 4. Private banks have the opportunity to strengthen the additional capital base by increasing the volume of subordinated debt obligations. In the practice of private banks, the absence of subordinated debt obligations indicates the weakness of their position in the market of long-term loans. Taking into account that subordinated debt obligations make up the main part of the bank's additional capital, as well as being a convenient and cheap means of attracting long-term resources, it is appropriate to expand the practice of attracting subordinated debt obligations by private banks [7]. 5. In order to increase the share of time and savings deposits in the total deposits of private banks, it is appropriate to set a differential interest rate for time and savings deposits of legal entities based on their duration and amount. References: 1. Mirziyoev Sh.M. Address of the President of the Republic of Uzbekistan to the Oliy Majlis and the people of Uzbekistan. January 24, 2020. - www.lex.uz 2. Abdullayeva Sh.Z. Banking. "Economics and Finance" Textbook. 2017 year. 732 pages. 3. Information from the official website of the Central Bank of the Republic of Uzbekistan – www.cbu.uz 4. Information from the official website of the Central Bank of the Republic of Uzbekistan – www.cbu.uz 5. Information from the official website of the Central Bank of the Republic of Uzbekistan – www.cbu.uz 6. Abbas F., Iqbal S., Aziz B. The impact of bank capital, bank liquidity and credit risk on profitability in postcrisis period: A comparative study of US and Asia //Cogent Economics & Finance. – 2019. 7. Kishan R. P., Opiela T. P. Bank size, bank capital, and the bank lending channel //Journal of Money, credit and banking. – 2000. – С. 121-141. http://www.lex.uz/ http://www.cbu.uz/ http://www.cbu.uz/ http://www.cbu.uz/